DOL Letter, August 7, 2015

on rollovers. The problem arises because the level of compensation received from the IRA would
usually be higher than that received from the plan if the adviser concludes that he will need to
provide a higher level of service for the IRA. This situation would subject the adviser to the same
difficult BIC exemption requirements faced by variable fee advisers as described above. We ask
that this situation be addressed in a way that provides a level playing field for all advisers,
regardless of whether they have a relationship to the plan and regardless of the fee structure they
use.

Lifetime Income Options

Social Security is the foundation of Americans’ retirement and provides families with an
inflation-protected guaranteed stream of income throughout retirement. However, with the shift
from employer-provided defined benefit to defined contribution plans, many retirees will no
longer have a traditional pension with lifetime income to supplement Social
Security. Nevertheless, lifetime income investments provide a stream of income throughout
retirement that may help many retirees not outlive their savings. We recognize that a lifetime
income option is certainly not the right investment for every family. But for some retirees,
lifetime income products are a valuable or useful investment option.

We know that the Department shares our interest in lifetime income options and just
recently issued guidance that should encourage more employers to offer lifetime income
annuities as a benefit distribution option in their 401(k)-type plans. Therefore, we encourage you
to carefully scrutinize your guidance to ensure that it does not disfavor lifetime income options
over other investment options. We also note further that just because a product is “low-fee” does
not always mean it is the best investment for a particular investor, particularly if the individual
values and is willing to pay for the guarantees embedded in certain retirement income products.

Transition Issues

We applaud the Department for providing a transition rule for existing assets held by
plans and IRAs. We agree with you that prior advice or actions should be protected. In this
regard, we would ask you to consider further transition issues, including possible protection of
(1) advice that was provided before the applicability date (but not acted on as of the applicability
date) and (2) advice that was paid for before the applicability date but not provided until after the
applicability date. We fully recognize that all transition rules need to be considered in light of the
tension between two competing factors: (a) the desire not to disrupt existing arrangements that
were entered into in reliance on the law in effect at the time, and (b) the need to implement new
rules that will provide greater protections and improve the legal framework. We greatly respect
the Department’s efforts in this regard and ask that the Department consider the two situations
noted above in light of these competing factors.

Internal Revenue Service (“IRS”) Enforcement
Although IRAs are generally not subject to ERISA, Reorganization Plan No. 4 of 1978

provides that the Department has authority over the interpretation of the Code for purposes of the
prohibited transaction rules. Therefore, the Department has the authority to issue guidance


DOL Letter, August 7, 2015

BIC Exemption

We applaud the Department for thinking outside of the box and developing a structure
that allows current business and compensation practices to continue, even as financial
professionals become fiduciaries under the proposed regulation. However, we recommend that
the Department critically examine the BIC exemption to ensure that it is operational. If from a
practical perspective financial professionals cannot use the exemption, we worry about the
impact that may have on small businesses and moderate income savers. For example, it may be
very difficult for service providers to show that their own compensation is reasonable without
guidelines and safe harbors to follow.

Furthermore, the disclosure requirements seem excessive. For example, the BIC
exemption requires financial professionals, prior to the execution of the purchase of an asset, to
provide a chart that provides the total cost to the plan, participant, or beneficiary account, or
IRA, of investing in the asset for 1-, 5-, and 10-year periods, expressed as a dollar amount. The
exemption would require the chart to include disclosures of total costs, including acquisition
costs, on-going costs, distribution costs, and ‘other’ costs.

As you know, it’s a balance when it comes to participant and investor disclosures.
Investors need appropriate information to make informed decisions. However, if too much
information is provided, it gets ignored. Unfortunately, it appears to us that these disclosure
requirements will overwhelm participants and investors. We also think it will be very difficult
for financial institutions to comply with these requirements. Therefore, we urge the Department
to revisit the BIC exemption disclosure requirements. We also encourage you to “piggyback”
off of relevant rules from your own guidance and that of other regulators that are currently in
place and that serve the intended purpose.

Rollover Advice

The proposed rule provides that a person is a fiduciary if he or she provides advice
regarding distributions and rollovers. As noted in your guidance, rollovers will total more than
$2 trillion over the next 5 years. This is a key period of time when an employee leaves his
employer and needs to decide what to do with his retirement assets. The serious threat of
“leakage,” which undermines retirement security, make this time a point at which appropriate
financial advice is critical. Therefore, we applaud the Department for expanding the rule to
include distributions and rollovers in the definition of fiduciary advice. However, we ask the
Department to ensure that under the rule, plan participants will continue to have access to
investment education from financial advisers during this transition period. It is important that
educational conversations at the time of rollover not be considered fiduciary advice.

Plan Advisers with Level Compensation

The proposed rule generally encourages conflict-free compensation
arrangements. However, under the guidance, plan advisers who receive level compensation from
a retirement plan, and would receive level compensation for investment advice provided to an
IRA rollover from a retirement plan, would be discouraged from working with plan participants


DOL Letter, August 7, 2015

related to prohibited transactions for IRAs — and that is the basis for this guidance. However, it
is important to note that the Department does not have enforcement authority over IRAs — the
IRS does. As such, we encourage the Department to continue coordinating with the IRS as you
work to finalize this guidance.

Existing Advisory Programs and Online Tools

We share the Department's intention to promote advice that ensures that advisers are
acting in the best interest of investors. We are aware of the existence of many advisory programs
offered in the market today that provide fiduciary advice, as well as online educational tools that
provide valuable, non-conflicted guidance to retirement investors. We encourage the
Department to review the proposed rule carefully to ensure that the ability to make referrals to
advisory programs is maintained and access to constructive online tools is not restricted. Both
are examples of precisely the types of non-conflicted advice and guidance that the Department
seeks to expand.

In conclusion, we strongly believe that workers and investors deserve advice that is in
their best interest. That is a goal we all share. However, it is critical that the final rule be
operational and one that in practice is useable. We also believe that it is important that any
guidance enhance and not diminish savings opportunities for small businesses and moderate
income families.

Your proposal represents an important step in making a best interest standard a
reality. We also appreciate both your recognition that the proposed rule is only the first step in
the process and your willingness to listen to concerns and adopt reasonable changes from all
parties, including those in the hundreds of comment letters submitted with respect to the
proposed rule. As revisions are made based on formal comments and the public hearing process,
we hope the Department will continue an open and productive dialogue with stakeholders to
ensure a smooth implementation.

Again we applaud your efforts and stand ready to work with you to help American
families prepare for a financially secure retirement. If you have any questions or need additional
information, please contact Kara Getz at 202-224-4515. Thank you for your consideration of
this important matter.

Rone Uyelar.

Ron Wyden Debbie
United States Senator United States Senator



Wnited States Senate

COMMITTEE ON FINANCE
WasuincTon, DC 20510-6200

August 7, 2015

The Honorable Thomas E. Perez
U.S. Department of Labor

200 Constitution Ave.
Washington, D.C. 20210

Re: Comments on Proposed Regulations on Definition of the Term “Fiduciary” —
RIN 1210-AB32

Dear Secretary Perez,

We are writing today to comment on the recently re-proposed Department of Labor (the
“Department”) regulations defining who is a “fiduciary” of an employee benefit plan or
individual retirement plan under the Employee Retirement Income Security Act of 1974
(“ERISA”) and the Internal Revenue Code (“Code”) as a result of giving investment advice to a
plan, individual retirement account (“IRA”) or its participants or beneficiaries. We appreciate
your leadership on this important issue and we share your interest in developing a rule that
protects Americans against conflicted advice and helps families prepare for a financially secure
retirement, while preserving access to investment education and professional guidance. We also
appreciate the efforts and thoughtfulness that went into the re-proposed rule, and the
Department’s engagement with Congress, the Treasury Department, the Securities and Exchange
Commission, and industry leaders before re-proposing your rule.

It has been over 40 years since the Department issued regulations on what constitutes
“investment advice” under ERISA. Since then, there have been considerable changes in the
retirement plan world, including a shift from defined benefit to defined contribution plans. As
401(k) plans and IRAs continue to replace professionally-managed pension funds, investment
advisers play an increasingly important role in helping employers choose investments for their
retirement plans — and in advising participants and IRA holders on how best to invest their
savings to ensure a financially secure retirement.

The Department deserves great credit for highlighting both these changes in the
retirement landscape and the need to update the fiduciary rules. We also applaud the
Department’s focus on ensuring that savers receive advice that is in their best interest.
Suitability is not a sufficient standard. ERISA requires that we place the interests of savers and
retirement plans above those of their advisers.

In its report, The Effects of Conjlicted Investment Advice on Retirement Savings, the
White House asserts that conflicted advice may significantly reduce workers’ retirement savings.


DOL Letter, August 7, 2015

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DOL Letter, August 7, 2015

For example, the White House found that “conflicted advice earns roughly one percentage point
lower each year.” With approximately $1.7 trillion of IRA assets invested with brokers with
conflicts, the White House estimates that “the aggregate annual cost of conflicted advice is about
$17 billion each year.”

For these reasons, we support the Administration’s efforts to update the fiduciary rules to
ensure that advisers of 401(k) and IRA investors act in the best interest of their clients. The
reality is that today most Americans already believe that their financial professionals are acting
under a best interest standard — and they have never heard of suitability standards and differing
fiduciary standards. A best interest standard is key to ensuring American families receive
financial advice they can trust.

However, we are hearing a number of thoughtful concerns from stakeholders about the
re-proposed rules and we believe that the guidance can be improved and enhanced. For example,
it is critical that any guidance not restrict access by small businesses to advisers who promote
access to retirement plans. It also is important that the regulations not limit advisers from
assisting plan participants and investors with rollover or investment education and that the new
rule and its exceptions and exemptions take into account existing state regulations, the risk
attributes of the products to be purchased, and the risk attributes of the industries potentially
subject to the proposal.

Accordingly, as the Department works to finalize its guidance, we offer the following
thoughts on important aspects of the proposal that we urge you to retain and on issues of concern
that we ask you to consider further.

Clarifications

We appreciate the Department’s openness to clarifying language where it is being
misinterpreted. For example, it is our understanding that the Department intended that the best
interest contract exemption (“BIC exemption”) apply to distributions and rollover advice.
However, the current language provides some uncertainty. Therefore, we appreciate your
openness to clarifying this language.

We also hear frequently that many are concerned that under the proposed rules,
investment advisers must obtain a signed contract before providing investment
recommendations. This requirement is particularly problematic in the call center environment
where there are potentially thousands of service representatives and in 401(k) plans where
service providers do not normally contract with participants. It also could be expected to mean
there is a requirement of a signed contract prior to sitting down for the first time with a potential
client to discuss their services related to the client’s retirement accounts. On this issue as well,
we have heard informally that this was not the intent of the Department and we appreciate your
openness to making the contract requirement more workable, including consideration of the
creation of an enforceable commitment without requiring a signed, written contract.


DOL Letter, August 7, 2015

Finally, the definition of assets under the BIC exemption does not include listed options.
We believe that retirement accounts of all sizes should continue to have the choice to use options
to exercise appropriate risk management to protect accounts during times of market volatility.
Therefore, we encourage the Department to clarify this issue.

Investment Education

The re-proposed regulations provide a new rule with respect to investment education that
will supersede and replace Interpretive Bulletin (“IB”) 96-1. Although very similar to IB 96-1,
the new rule includes a few significant changes. For example, one very helpful change is
extending the guidance to include IRAs.

However, the new rule also restricts the identification of specific products or investments
available within retirement plans or IRAs in asset allocation models. This limitation would mean
that financial professionals could, for example, tell individuals about different categories of
investments, and the advantages of diversification, but could not name specific examples in any
category or it would no longer be investment education. This is the case even in general
communications. We find that to be a troubling result because for most investors and
participants, specific examples are extremely helpful.

We certainly understand the Department’s concern that, for example, if a financial
professional points to one particular fund in a plan, that appears to be financial advice and not
investment education. However, if instead, the financial professional was required to name a
few funds as examples, subject to certain standards, that seems more like investment education
and not advice. This is especially the case when the examples are chosen from the menu of
investment options in a qualified plan where all the options were chosen by a fiduciary.
Investment education is an important issue and we hope that the Department will look to find
middle ground in this area.

Small Businesses Retirement Plans

Encouraging small businesses to sponsor retirement plans presents unique challenges. In
2013, the Government Accountability Office (GAO) testified before Congress and highlighted
the shortage of retirement plans among small businesses, and the reasons why some small
employers are reluctant to sponsor plans. GAO’s research found that one-third of all private
employees work for employers with fewer than 100 employees. Among these small employers,
only 14 percent sponsor a retirement plan for their employees. Many small employers report
that they feel overwhelmed by the number of plan options, plan administration requirements, and
fiduciary responsibilities.

The reality is that retirement plans for small businesses are sold, not bought — and it is
important that any rule take this factor into account. We appreciate the Department’s willingness
to critically examine your proposed rule to ensure that it does not result in fewer new small plans
being created and it allows financial professionals the ability to help small businesses set up
plans and select investment options.